What is a life insurance trust?

A life insurance trust is a type of estate planning tool used in Maryland to help manage and distribute life insurance proceeds. In a life insurance trust, an individual (the grantor) transfers ownership of their life insurance policy to a trust. The trust has a trustee who is responsible for managing the trust assets, and these includes the life insurance policy. The trustee is the legal owner of the policy and makes decisions about the policy’s assets, such as how and when distributions of funds are made. In a life insurance trust, the grantor can also specify how the proceeds from the life insurance policy will be used and how they should be distributed. These instructions are stated in the trust agreement, which is drafted when the trust is created. Depending on the grantor’s wishes, the trust funds may be used for a variety of reasons, such as to provide income for beneficiaries, to pay off debts, or to cover educational expenses. A life insurance trust is an effective estate planning tool that can help ensure that life insurance proceeds are distributed in accordance with the grantor’s wishes. It can also help the grantor avoid potential tax liabilities that may arise if the funds are distributed directly to beneficiaries instead of through a trust.

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